Avoiding stamp duty?

Frank1in

I have just managed to sell my flat and so my partner and I are looking to buy a house together.

We've been looking for a few weeks and haven't found anything we like. I'm anxious not to lose my buyer so we've come up with three options.
The first one is we sell the flat and then move into rented accomodation until we find somewhere else to live. The problem is we can't suspend the mortgage so we'd have to pay a £3000 redemption fee.
The other option is we up the budget limit but this increases the stamp duty percentage. We'd go from paying about £2500 to almost £7000.
I've heard there are legal ways to avoid paying so much stamp duty but I ve looked on the internet and I can't find any more information.
Does anyone know if we can reduce our stamp duty?
The third option is to keep looking and hoping our buyer doesn't lose interest, I don't think this ll work though as we are third in a chain and we are all anxious to move before Christmas.
I m not having fun anymore!!!!

plane_boy2000

Avoiding stamp duty is in effect tax evasion.

I have a friend who is a solicitor - she told me that you could easily get away with payiong sill amounts of money for fixtures and fittings (say £20K) to bring teh house price down a level for stamp duty, but this has been tightened up and now its difficult to justify any more than a couple of thousand tops unless there are exceptional circumstances. HM C&E also check the land registry to ensure that sales prices are in line with the area so no trying to bung the vendor 50K in cash I am afraid.

There are only two things in life which are certain - Death and Taxes!

Mrs_pbradley936

The fixures and fittings are the best way if you are close to the rate change,
perfectly legal for a few thousand.

JennyB

Just wanted to say that avoiding stamp duty is perfectly legal but evading it is not. Avoiding meaning working within and around existing legislation to reduce/extinguish your tax liability; evading meaning breaking the law in order to reduce/extinguish your tax liability.

In terms of methods of avoiding stamp duty - I agree with the above - you can't just pay £50,000 for carpets and curtains! If it's near the threshold then you can pay a reasonable figure for such things to bring it under the threshold but the sums aren't huge I don't think.

Does anyone know any other stamp duty tax avoidance schemes?

JennyB

Just to add - personally I'd keep looking. Christmas is a long way off still! The parties involved will be keen on keeping the chain together and they might be more patient than you think. Re-double your househunting efforts.

silvercar

My mortgage company will refund redemption fees if you complete on another mortgage within 6 months of redeeming the first.

ajdj

A stamp duty 'avoidance' method used by a colleague was to offer to pay the vendors estate agents fees. Fees effectively deducted off the purchase price to bring price down under threshold. In this case property was £127,000. 2% estate agents fee = £2,540 + VAT, price now circa £124,000- no stamp duty payable....both solicitors accepted this as avoidance but not (in their opinion) evasion.

HTH.

RiskAdverse100

Agreeing to pay a debt of the Seller and not disclosing this payment to HMRC is tax evasion.

There is no legal difference between agreeing to pay the sale commission and agreeing to pay off the Seller's mortgage, their credit card bill, outstanding student loan or any other debt.

I am amazed that both solicitors suggested that this would be avoidance and not evasion. I bet neither put this in writing!

RiskAdverse100

PosterBoy77

RiskAdverse100 wrote:

Agreeing to pay a debt of the Seller and not disclosing this payment to HMRC is tax evasion.

There is no legal difference between agreeing to pay the sale commission and agreeing to pay off the Seller's mortgage, their credit card bill, outstanding student loan or any other debt.

I am amazed that both solicitors suggested that this would be avoidance and not evasion. I bet neither put this in writing!

RiskAdverse100

I don't see how it can be wrong. Stamp Duty is paid on the value of the property being purchased. Stamp duty is not levied on EA fees. If a buyer chooses to pay the EA fees for a seller I cannot see anything wrong with that. Nor could I see anything wrong with a buyer choosing to pay for removal costs and the seller's solicitor fees. If they are all correct fees and not inflated there is nothing the inland revenue can do.

RiskAdverse100

Stamp Duty Land Tax is not paid on the value of the property being purchased but rather on the money changing hands.

If one party wanted to sell a property worth £1m to another for £200k then tax is paid on the money changing hands and the bill is £2k rather than £40k.

There may of course be consequences for other taxes of selling a property at an undervalue in this way.

HMRC have a wide definition of what 'money changing hands' means. This very clearly includes the assumption of a debt owed by the Seller as well as the release of a debt owed to the Buyer.

So if A owes B £1m and he gives him a property worth £1m to cancel the debt out then tax is paid on £1m although no money changes hands.

Exactly the same principle applies if the Buyer assumes a debt of the Seller as part of the deal. Although in your example the debt is a fairly small sum it is still a debt (the Seller being contractually bound to pay it as a result of the sale agreement with the estate agent) and it must be disclosed to HMRC.

As I said previously, if the assumption of a debt was not 'chargeable consideration' then there would be nothing to prevent a buyer agreeing to take over the seller's huge mortgage, pay the difference between the sale price and the mortgage sum in cash and pay tax on a much smaller sum.

If you really feel that this is avoidance rather then evasion then feel free to contact HMRC and seek their guidance.

I am in no way condoning the truly ridiculous way in which SDLT is charged on properties. Not to have a stepped bands is grossly unfair to people trying to buy property at around the band limits and is hardly surprising that people to look to reduce their tax bill in imaginative ways such as this.

RiskAdverse100

mi-key

Beware - its very easy to take peoples ( forum posters, mates, solicitors etc... ) advice on things like this - BUT - they arent the ones who will end up with a hefty fine or prison sentence for tax evasion.